Six months after the proposal was put forward, a deal was struck by EU negotiators on the financial leg of the REPoweREU plan, the EU’s strategy to cope with the energy crisis and phase Russian fuels out of the market. National governments will be invited to quickly add new chapters to their recovery plans, which is potentially good news and a chance to further invest in the energy transition. However, Member States must avoid falling into the trap of fossil fuels, which are making a comeback in the palette of investments eligible for EU funds.
Christophe Jost, Senior EU Policy Officer | 22 December 2022
REPowerEU negotiations had implications for several EU instruments, from the Recovery and Resilience Facility to agricultural and cohesion funds, to the Emissions Trading System (ETS) and even the new Brexit fund. It turns out these discussions were more a budget talk than a negotiation of the necessary measures to deal with the climate and energy crises, with the EU officials responsible for economic and budgetary affairs at the helm. In the end, the EU came up with a typical budget compromise aiming mostly at reshuffling existing funds.
Indeed, the agreement deals mostly with unused funds, in particular the loans from the recovery package. Although Member States originally did not want to request such loans, the energy crisis and inflation have made this a necessity. In a more creative way, only a little fresh money is foreseen, by frontloading allowances from the ETS and transferring money from the Innovation Fund and other funds if the Member States want so. Thus, the EU claims that new REPowerEU investments will be possible without adding new contributions to the Member States or raising money on the market.
Still, this is a substantial amount of money – EUR 225 billion left from the loans, EUR 20 billion from new grants and potentially more. The main question now is how to make use of it to address the energy crisis and ensure security of supply while not compromising the ambitious climate target, or even while speeding up the clean energy transition to get us closer to the target.
And here the agreement sends a mixed signal to Member States. While emphasis is put on some of the needed investments to boost the green transition, with a clarified list of eligible measures (from building renovation to decarbonising transport and industry, addressing energy poverty, deploying renewables and investing in grids), it is still possible for Member States to use the money for measures that contradict the climate policy. The REPowerEU plan is not a new climate strategy, and although it includes elements to accelerate the energy transition, the main idea is to stop using Russian fossil fuels, not all fossil fuels. And at the end of the day, with the REPowerEU chapters, Member States will have the chance to use EU funds for fossil fuels projects which have been thus far excluded from EU public support as a main contributor to the climate crisis.
How did this happen? The EU allowed this by applying a specific fossil derogation to the new ‘do no significant harm’ principle, which was supposed to ensure Member States could not use the recovery package for unsustainable investments. The negotiators did put some limits on these investments: fossil gas will have to be supported by loans only (up to 30 per cent), not grants, and be operational by 2026; oil is eligible only in three countries. Every time this fossil exception is used, Member State must clearly justify that the projects are absolutely needed. But allowing them to be operationalised by 2026 and providing up to 30 per cent in loans means that fossil gas can become substantial in a country’s energy mix and not just a short-term solution. In this sense, it’s not only a regression on the phase-out of fossil fuels from the EU budget and programmes, but also a major blow to climate policy and the Paris agreement. The year 2021, according to the International Energy Agency, should have been the last year when new fossil fuel projects are financed if we want to save our planet.
The deal can have serious consequences for central and eastern European countries. It seems many derogations are just fit for these countries, since most of them are counting on gas as part of their coal phase-out: gas will be used to produce electricity, heat homes and supply their industries. Moreover, the three countries eligible for oil are all in this region (the Czech Republic, Hungary, and Slovakia). Allowing so much money for fossils in these countries will be done at the expense of much-needed investments in renewables, energy efficiency and savings, especially in the building sector. Central and eastern European governments might just take this opportunity to continue investing in fossil fuels, or even resurrect old projects that are not in line with climate goals. No wonder the draft REPowerEU chapter in the Czech Republic contains investments in pipelines and storage systems. In some countries, there are unconfirmed reports that the REPowerEU chapters might be used to support other potential liquified ‘natural’ gas (LNG) terminals and cross-border fossil infrastructure.
The parties must have a real debate on the design of the new chapters, including wide consultations with stakeholders, much more so than was done for the recovery and resilience plans. Here the rules governing the preparation of the chapters have been improved, with clearer standards to abide by and set a dialogue with local authorities, civil society and social partners, among others. If the new investments are properly prepared in partnership with the public, there is a chance that those REPowerEU chapters will allow stakeholders to be part of the solutions that need to be prioritised while also unlocking more renewables and energy saving.
The last condition leading to proper use of the money relates to the transparency of allocated funds, and here some progress has been made. Member States will finally need to create a user-friendly and easy-to-use portal that lists the 100 biggest recipients of funds from the recovery plans and REPowerEU chapters. But although this is a positive step, it is also a slap in the face for the public, which should have the right to access information about all public fund beneficiaries, not only the biggest ones. The Council of the EU’s argument that publishing a more extensive set of data is an ‘administrative burden’ should not be taken lightly and could mean that these funds follow the well-known modus operandi of taking decisions behind closed doors. Improving transparency is necessary to avoid the misuse of public money.
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